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How should I understand "short the pound" in this sentence? My first guess would be "we all didn't need the pound anymore", though that sounds weird to me and I feel it's somehow not entirely correct. Another idea would be "to bring it down", "to cause it go down"?

The pound was supposedly fixed at a high arbitrary level and a lot of us knew that we were all short the pound

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This is more about economics, and a detailed description about currency is beyond this exchange, but essentially what it means to "short" a currency, is to take an investment position that is based upon the expectation that the value of that currency will decrease.

It's seen as a sign of lack of confidence in that currency (especially if you short the currency of your own nation). So you can see in context, there is a reference to a

high arbitrary level

meaning that there was a feeling that the pound was overvalued and therefore the market would eventually correct, and lower the value of the pound, meaning they stood to make money by shorting the pound.

https://en.wikipedia.org/wiki/Short_(finance) for a good brief introduction

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    Also, you can "short" any kind of investment that changes in value. It's easier to "short" things like currency, stocks, or durable goods -- anything that is traded on any kind of "futures" exchange. – Andrew Feb 22 '17 at 23:40

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