Hi,
It should be in UTF8 by default. Double check your database tables are all using the correct encoding, if they’re not then make a backup of the database and update the encoding for the tables.
If they are then try disabling all plugins and enable one by one, sending an email each time to test. It is possible you have a plugin within your install that is incorrectly using stripslashes() which would cause an issue with showing the umlaut.
Thanks,
Kieran.
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