The Terminal understands Unicode, but as of R4.5, does not display international characters properly by default. Be’s Fred Fish offers the following notes on this situation:

This is not a bug, though it might seem like one. Bash uses the readline library to process input and output. The readline variable that controls whether meta characters are output verbatim or escaped is ‚output-meta‘ and by default is set to ‚off‘. It can be set to ‚on‘ by creating a file called .inputrc in the directory that the environment variable $HOME points to [i.e. your /boot/home folder. -ed], and inserting the command set output-meta on.
Part of the reason the current default is the way it is, is that when bash starts up, it calls

 setlocale (LC_CHAR, "")

which returns „C“, so it selects to use a „portable“ locale. This means that it does not switch to „8-bit mode“ and thus the default when handling some input/output is to quote characters that are considered „meta chars“. We are considering ways to change this behavior. But for now you can use $HOME/.inputrc to get the behavior you want.
Please try also setting input-meta to „on“ and convert-meta to „off“.

BeTips.net has heard that this solution does not work in all cases. If you have additional suggestions for getting this to work, please let us know.