It’s a bug. Reboot watch and phone. Happens occasionally to me too, since the original Apple Watch, believe it or not. It should still be working like normal.
you can tell if you’re seeing the bug if the watch mail notification icon is square and not round.
Maybe I'm confused but doesn't both options do the same thing? Dismiss, trash, on a notification should mean the same thing. Unless you're talking about trashing the message itself?