Does this issue occur when all extensions are disabled?: Yes

Version: 1.109.0-insider (user setup)
Commit: c664b45
Date: 2026-01-12T05:02:56.770Z
Electron: 39.2.7
ElectronBuildId: 12953945
Chromium: 142.0.7444.235
Node.js: 22.21.1
V8: 14.2.231.21-electron.0
OS: Windows_NT arm64 10.0.28000

settings.json

{
    "terminal.integrated.suggest.insertTrailingSpace": true,
    "terminal.integrated.suggest.quickSuggestions": {
        "arguments": "on",
        "commands": "on",
        "unknown": "off"
    },
    "terminal.integrated.suggest.suggestOnTriggerCharacters": true,
    "terminal.integrated.suggest.upArrowNavigatesHistory": false
}

Steps to Reproduce

In the terminal, type ls ../ and observe the files/directories that are suggested. The suggestions seem to be from 2 levels up instead of 1 level up.

I'm able to repro inside a Linux Dev Container (bash), as well as on Windows (PowerShell).

Recording

cc: @meganrogge