Apple Watch Bluetooth range...

Hi Daniel

On your iPhone, try resetting your network settings:

Settings > General > Reset > Reset Network Settings (Note: you will need to reconnect your iPhone to your Wi-Fi network afterwards - and to any others for which you have previously saved the credentials).

Afterwards, also try restarting - or, if that doesn't work, force restarting - both your iPhone and your Apple Watch:

• Restart iPhone: Press and hold the Sleep/Wake button until the red slider appears; Drag the slider to turn your iPhone off; When it has finished turning off, press and hold the Sleep/Wake button again until you see the Apple logo.
• Force restart iPhone: press and hold both the Sleep/Wake and Home button for at least 10 seconds, until you see the Apple logo.

• Restart Apple Watch: Press and hold the side button until you see the Power Off slider; Drag the slider to turn off completely; Afterwards, press and hold the side button until you see the Apple logo.
• Force restart Apple Watch: press and hold both the side button and Digital Crown for at least 10 seconds, until you see the Apple logo.

If those steps still don't help, contact Apple Support (you are covered by warranty and are also still within your 90 days of complimentary phone support for general technical support).

https://www.apple.com/support/watch/contact/

You may have wireless interference, but 5cm is obviously an extremely short range and suggests an issue with either the watch or your iPhone.

Wi-Fi and Bluetooth: Potential sources of wireless interference - Apple Support

About Bluetooth and Wi-Fi on Apple Watch - Apple Support

Given the troubleshooting steps that you have already tried, I suggest making a Genius Bar reservation at your local Apple Store to have it checked:

https://www.apple.com/retail/

Or contacting Apple Support:

https://www.apple.com/support/watch/contact/

The watch should work within 3 m line of sight.