Just tested this myself. It works quite well for me. Either via the new direct cursor manipulation (just grab the cursor and move it (the magnifying glass has been removed so the finger occludes the word a bit)) or via my favorite old method: Just hold down the spacebar/3D touch anywhere on the keyboard and move the cursor via this trackpad mode.
Oh yeah, you're right. Once I move the cursor a bit up or down it moves above my finger ?Once you finger has grabbed the cursor you can slide it down so that the word is not hidden by your finger.