Does anyone have any idea why this is happening? It does this anywhere in my app where the keyboard is shown. I don't see any way I can be influencing how the keyboard is displayed so I am confused why this is happening and how to resolve it.
Assuming that you didn't do anything special, this is the system-provided text input UI on watchOS, which you don't have any control, and so I'd see that a system bug.
Would you mind to file a feedback report with the watchOS version and the model of the Apple Watch you are using, and post the report ID here? Thanks.