I read about another user with this problem, and his solution was:

(1) Open the Privacy Options:

"3-bar" menu button (or Tools menu) > Options

In the left column, click Privacy

(2) In the Location Bar section toward the bottom, uncheck all of the boxes, then re-check the ones he wanted:

The 3 boxes are: History, Bookmarks, Open Tabs

Then test again. That doesn't affect search suggestions, which as you noted, are on the Search Options panel.

Any improvement?

Thanks for the quick reply. No improvement though...

Could one of your extensions be interfering? The drop-down design changed in Firefox 48, but some users never got Firefox 48 and skipped directly from 47 to 49...

You could test in Firefox's Safe Mode. In Safe Mode, Firefox temporarily deactivates extensions, hardware acceleration, and some other advanced features to help you assess whether these are causing the problem.

If Firefox is not running: Hold down the Shift key when starting Firefox.

If Firefox is running: You can restart Firefox in Safe Mode using either:

• "3-bar" menu button > "?" button > Restart with Add-ons Disabled
• Help menu > Restart with Add-ons Disabled

and OK the restart.

Both scenarios: A small dialog should appear. Click "Start in Safe Mode" (not Refresh).

Any improvement?

Yeah that worked, now I have to figure out which add-on might be interfering. I had a strong suspicion on the complete theme FT DeepDark but disabling that didn't work. Do you have any clue which add-on it might be?

I found the culprit. It was InstantFox, it worked fine before the update but now default suggestions without any keyword are not appearing for some reason. Thanks for the help. I'll mark this as solved.