If the situation was **exactly** like you sketched, then it cannot be explained that the LED lights up !

**So something else is going on**

Your power supply of 5 V is also capacitively coupled to the mains voltage and this causes a voltage between you and the 5 V supply.

All power supplies have this capacitive coupling caused by the transformer inside it and a small value capacitor between mains and output to prevent emissions of high frequency signals. The total capacitance will usually be less than 1 nF but that is enough to light up a sensitive LED.

Try this again with a battery and you'll see the LED does not light up.