I confirmed that the GPIO has no level shifting that occurs to output. It is directly the FMC voltage (the FPGA output level 1.8V in my case). The PS2-PMOD resistor pullups would interfere with level shifting so I removed it and directly wired it to the PS2 din connector on the mouse adapter. I used the VC707's 1.8V source on J14 header left pin located right under the Board Power Port. I was originally bringing down the voltage down from 5V using a resistor divider on my PCA9306 level translator, but I removed that once I had established the reference voltage on the low side of the PCA9306. Now the two sides, 1.8V and 5V are from separate sources. Measurement on my oscilloscope confirmed that the level was properly translated to output at 5V and back to input at 1.8V mouse for the FPGA. See the final setup.