Yes, this is a known issue with dd as with many other coreutils programs.
Strictly speaking as I understand it, it is not a deviation from POSIX, since
POSIX does not require support for locales with multibyte encodings. Still, it
would be nice to fix dd at some point, although it'd be a pain to do correctly
and efficiently and it's long been low priority since hardly anybody needs or
uses this feature on any platform.
- bug#32267: dd's ucase and lcase and LC_CTYPE. Ralph Corderoy
- bug#32267: dd's ucase and lcase and LC_CTYPE. Paul Eggert