FYI: Tested on VSCode 1.104.2 and does not happen in either the integrated terminal (bottom pane) nor if the terminal is in Editor area. So does seem to be a Cursor issue.
In Cursor, with “Developer: Toggle Keyboard Shortcuts Troubleshooting” enabled, I can see that
if the terminal is in the editor area or new window, a keybinding match is never met and instead get this line:
2025-09-26 08:56:16.639 [info] [Window] [KeybindingService]: + Ignoring single modifier shift due to it being pressed together with other keys.
BUT, when it does work (in the native terminal pane at the bottom), there is such line and I do get a keybinding match:
2025-09-26 08:57:57.707 [info] [Window] [KeybindingService]: \ From 18 keybinding entries, matched workbench.action.terminal.sendSequence, when: no when condition, source: user.