Should be, that’s how the UART should work. If you would see a constant DC, that would mean no data output. Regarding the range of 0.7 V, I am not sure that it is the right level, I haven’t tested mine. But it seems to be all working fine from the device side, so must be something with the ESPHome config or the ESP itself.
Have you tried to change the GPIO in the settings and move your cable there?