Under normal mouse mode, positions outside (160,94) result in byte pairs which can be interpreted as a single UTF-8 character;
For there to be an issue, a sequence of UTF-8 characters has be interpreted as an escape sequence, not the other way around.
From higher up in that linked document comes this:
The xterm program recognizes both 8-bit and 7-bit control characters. It generates 7-bit controls (by default) or 8-bit if S8C1T is enabled.
It proceeds to say 0x9B and ESC [ are equivalent, for example.
More relevant, it says 0x90 and ESC P are equivalent. U+05D0 is 0xD7 0x90 in UTF-8.
Are these equivalent for you?
perl -e'print "\x1B[31m", "foo", "\x1B[0m", "bar", "\n";'
perl -e'print "\x9B31m", "foo", "\x9B0m", "bar", "\n";'
Perhaps you can tell xterm to stop recognising the "8-bit" codes.
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Want more info? How to link
or How to display code and escape characters
are good places to start.