SFTP traffic is always encrypted. Additionally, the proxy wouldn't be able to decrypt the traffic anyway. SFTP uses endpoint encryption, the proxy (being a man-in-the-middle) cannot decipher anything.
Exactly that type of attack (man-in-the-middle attack) is what encrypting FTP or SFTP traffic is all about.
Exactly that type of attack (man-in-the-middle attack) is what encrypting FTP or SFTP traffic is all about.