Contacted Apple support. They were clueless. Recommended unpairing and repairing assuming it's a glitch in how the info about that contact transferred over (reading the contact as being located in Germany).
Haven't done it yet. Deleted the contact and did a hard reset on the watch but that didn't fix it. After the hard reset the texts still show up on my watch with her phone number rather than name (obviously) and when I hit reply on the phone number still in German.
I'll unpair at some point.
The message conversation would still be in German (or think it is) so thats not going to change, contact or not.
I tested this dictating responses to my wife and it works, if you try the following it might shake the watch into getting the right language. When I set her conversation to chinese, and dictate some chinese, it gives me a message in chinese characters (there are no default responses in chinese, for some reason). if i say english it will approximate it into chinese sounds. when I change it back to english UK it will recognise the english words (and start to give me default responses as well as my own) - so obviously this behaviour is working properly (for me)
I would suggest following my steps above. changing it to a different language and then back to English may be what it need to fix it. if you do want to try it - add the chinese (simplified, pinyin) keyboard, set it to the chinese keyboard for that conversation and then dictate a reply to them on the watch ("ni hao", pronounced kind of like "knee how". if it comes up with 你好 on screen you know the watch is now following the keyboard you chose) if it works, you should be able to switch it back to english and it should work. if not, i guess the only option left is to unpair, but I'm hoping this works for you.