Outlook for Mac inserts signatures at the very end of an email chain

This is indeed a known bug in the latest versions of Outlook for Mac. When you reply to an email, the signature sometimes appears at the very bottom of the entire email chain instead of right below your new message. The workaround you found, enabling “When replying or forwarding, use the format of the original message”, is currently the best solution, as it forces Outlook to keep the proper layout. Microsoft is aware of the issue and is expected to release a fix in a future update. In the meantime, you can also send feedback directly through Help → Feedback in Outlook to help push this issue higher on their priority list.

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