This is a minimal reproduction of a bug in .NET.
The application is configured to print an environment variable called MyVariable. Since this variable is defined as "Hello world" in launchSettings.json, it is expected to print Hello world when run with either dotnet run or dotnet watch run.
The application runs as-expected when run with dotnet run. When run using dotnet watch run the application prints an empty string and runs with default configuration (even if you specify dotnet watch run --launch-profile http) because the launch profile is not used. This seems to be because dotnet watch cannot parse launchSettings.json because it contains a comment. Despite this, no errors or warnings are logged. This is inconsistent with the behaviour of dotnet run which does tolerate comments (as explicitly added in #11860).