The young forward joined the Glovers on loan in September and has impressed at Huish Park, netting three times in 11 appearances.
And Dyche believes the experience has been a hugely positive one for his 19-year-old starlet.
"I am really pleased for Gavin," the Hornets boss told the Watford Observer.
"I have spoken to him a few times and he is really enjoying the taste of first-team football.
"It can only stand him in good stead moving forward."