Why a Browser May Bypass the Proxy for 169.254 Addresses
Understand why a browser may bypass a proxy for IPv4 link-local destinations, without confusing that choice with DHCP address assignment.
A browser exception for 169.254.* concerns requests to link-local destinations. It does not control whether the computer can obtain a DHCP lease.
IPv4 link-local addresses belong to the 169.254/16 range and are intended for communication on the local link. A remote proxy usually cannot reach the same local device by that address: the proxy has a different network location.
For a browser request to a local device, bypassing the proxy may therefore be the route that makes sense. Whether direct local access should be allowed is still a policy decision. A privacy-focused application might deliberately prohibit it.
DHCP operates separately from the browser's HTTP or SOCKS routing. Its initial address-acquisition messages do not travel as browser web requests. Removing a browser's link-local exception will not make the operating system send DHCP through SOCKS or disable DHCP itself.
Use the symptom to choose the setting. If a local device page becomes unreachable after enabling a proxy, examine destination bypass rules. If the network interface has failed to obtain its expected address, investigate interface configuration and the DHCP exchange. The similar-looking address range does not join those two troubleshooting paths.