Issue sending emails from Sendgrid to Oulook or Hotmail users

From what you've shared, it sounds like you are using a dedicated IP address. The error you're seeing is due to you sending to a Microsoft owned email servers from an IP address they are unfamiliar with. Unfortunately Microsoft tends to auto-block new IPs, not just IPs with a poor sending reputation/history.

Are you sending email from new IP addresses?

IP addresses not previously used to send email typically don't have any reputation built up in our systems. As a result, emails from new IPs are more likely to experience delivery issues. Once the IP has built a reputation for not sending spam, EOP will typically allow for a better email delivery experience.

New IPs that are added for domains that are authenticated under existing SPF records typically experience the added benefit of inheriting some of the domain's sending reputation. If your domain has a good sending reputation new IPs may experience a faster ramp up time. A new IP can expect to be fully ramped within a couple of weeks or sooner depending on volume, list accuracy, and junk email complaint rates.

I recommend completing the Hotmail Blacklist Removal form. I also highly recommend this RackAid post about troubleshooting Hotmail delivery issues, which includes this gem of a pro-tip:

Usually, within 24-48 hours, you should receive notice of their decision. Typically, you receive one of two replies:

Not qualified for mitigation

We have implemented mitigation

If you receive the not qualified response, reply to the email. Ask for clarification as to why your IP did not qualify. You will usually receive a response in 24-48 hours. The response comes from a real tech who will work with you to resolve the issue. If you IP qualifies for mitigation, you should see the Hotmail email block removed in 24 hours.

You may also want to use Microsoft's delisting portal, although I have seen the most benefit for SG users coming from using the "Hotmail" support form linked above.